UNIT 4: Growth Marketing Funnel – The Growth Marketing Book

UNIT 4: Growth Marketing FunnelMay 15, 2021February 8, 2022

Happy customers become brand advocates and spread the word. This “word of mouth” marketing is explored in the Referral stage of the marketing funnel.

The Referral Stage

This is often the most overlooked and underappreciated stage of the AAARRR funnel. This is where your existing customers refer your product or service to their friends and family.

“Everyday startups” really started talking about the Referral stage of the funnel after some big successes came from the likes of Dropbox’s “invite friends and earn more storage” campaign that led to 3900% growth within 15 months and later, Uber’s ‘refer and earn free rides for both you and your friend’ campaign.

There are some key data points and rationale that show the effectiveness of referrals:

Referred deals are usually closed faster than deal sourced from other channels
The lifetime value of referred customers is usually higher than non-referral clients
Most people trust recommendations from people they know compared to ads

Organic content channels such as email and social media and often used to run referral campaigns alongside in-app and in-platform promotions.

Metrics to Measure Referrals

Referral marketing metrics are best defined specific to the campaign you’re planning to run. However, there are some key metrics that can help you measure your overall referral effectivess.

Some of the referral metrics are:

Number of active users sharing invites
Referral link CTRs
Invitees per referer

It’s also important to track metrics from other stages of the marketing funnel separately for the referred user segment. This helps compare customer behavior of customers that come from referrals vs non-referred customers.

Since referral campaigns will again lead to Acquisition, Revenue, and Retention (and potentially more referrals), you can track metrics in those stages again for the referred customer segment.

For example:

Churn rate of referred customers
Retention rate of referred customers
Lifetime value of referred customers

The key idea here is to segment your referred customers and measure their behavior vs non-referred customers. You can also create multiple referred customer cohorts within the segment to track customers referred during different times.

The Viral Coefficient

As referral programs grow, you’ll hopefully notice the “viral” addition of customers as a result. “Viral” is anything that is created through spreading across from one to many. The viral coefficient measures how well your referrals are converting.

It takes into account both the number of referrals as well as the conversion rate.

Viral Coefficient is calculated as follows:

Viral Coefficient = (# invitations sent per customer) X (% conversion rate of the invitations)

This can give you an outlook on how well you can acquire viral growth through referral campaigns.

It’s also important to consider the Viral Cycle Time along with the Viral Coefficient to get a complete picture of HOW WELL and HOW FAST your startup or business can grow using referral marketing.

UNIT 4: Growth Marketing FunnelApril 30, 2021February 8, 2022

In Chapter 20, we explored the Revenue stage of the AAARRR growth funnel. In this stage, we will focus on the next stage, which is Retention.

The Retention Stage

Retention becomes the natural next stage of focus after the first purchase or initial transaction.

After users have signed up for a service or purchased a product, they’ll be looking for the transformation your product or service had offered.

If you can ensure you can provide the transformation (the equivalent value of the consumer’s investment), you’ll be likely to retain the customer for a renewal, for another order, to avoid churn and improve lifetime value.

These are the metrics that are the focus of the growth marketing campaigns in this stage of the AAARRR funnel.

Metrics to Measure Retention

Customers can say “yes” to your business at multiple touch points after the initial transaction. All metrics that can measure this “yes” are retention-related metrics. Some examples are:

Contract Renewal Rate
Customer Lifetime Value
Churn Rate
MRR Churn
Gross Revenue Retention (GRR)
% Returning Customers
Net Promoter Score
% Revenue from Existing Customers
Customer Stickiness

Retention campaigns focus on one or more of these metrics.

Examples of How Startups Measure Retention

Most subscription-focused startups measure retention in terms of churn rate, which is basically the rate at which customers stop doing business with you.

Churn leads to lost revenue and that’s what churn rate measures – at what rate you are losing potential revenue. It’s the opposite of growth rate.

Similarly, most ecommerce startups measure % revenue from repeat customers or % of orders from repeat customers along with Lifetime Customer Value.

There is another metric ‘TBP’ ie. time between purchases that is usually measured by ecommerce startup alongside the % revenue from repeat customers.

As with all stages of the funnel, when you design any campaign in retention stage, make sure to start by deciding your focus metric for the campaign.

UNIT 4: Growth Marketing FunnelApril 15, 2021June 9, 2021

UNIT 4: Growth Marketing FunnelApril 9, 2021June 9, 2021

In Chapter 19, we explored the Acquisition stage of the AAARRR growth funnel. In this stage, we will focus on the next stage, called Activation.

What is Activation?

Activation is the next big step in your growth funnel. In this stage, you’re actually having the first interaction with your product or service. This is where the user has gone from being a user on your website or just a lead to actually interacting with your product and thus upgrading to being a prospect.

This interaction with your product or service can be in the form of demo signup, sign up for a free/basic account, or even a sales response in some cases. All of these can be actions to look for to tag a user in the activation stage.

Activation vs Acquisition

Remember that in Chapter 18, we saw that Acquisition is when you can identify a user and that’s the stage where the evolution happens from “traffic” to “user”.

In the corresponding sales terminology, a user in the Acquisition stage can be best called a lead while a user in the Activation stage can actually be called a prospect.

This is why Activation is closer to the Revenue stage of the funnel as leads narrow down to prospects which would further narrow down to paying clients (we see this in the next stage of the funnel).

Note: This is why I place Revenue right after Activation and not at the bottom of the funnel, like the old Pirate metrics, that were made around Freemium apps.

Metrics for Activation

Here are the key metrics for the activation stage of the funnel:

Product demo signups
Free trial signups
Free account signup
Sales demo signup

These are some of the metrics that shows Activation.

Examples of Activation

Some of the examples that mark the Activation stage include:

When a user completes their first ride with Uber
When a company creates its free plan on Slack
When a new Gmail account user sends their first mail
When a customer receives a grocery delivery from Instacart
When a customer books a free audit call or report from a service provider

Activation is the stage where your user realized your product’s promise or value proposition. Hence, this stage can better predict revenue.

It also shows how well and efficiently you spent money on the last stage of Acquisition.

UNIT 4: Growth Marketing FunnelApril 2, 2021June 9, 2021

In Chapter 17, we explored the Awareness Stage of the AAARRR Growth Funnel in depth.

In this chapter, we will deep dive into the Acquisition Stage.

What is Acquisition?

Acquisition is when the user can be identified specifically as a user – and not just as a number on the “traffic” metrics of your analytics dashboard.

Things are getting real and it’s not just a impression or visit anymore. At this stage, you would usually have some way of identifying the person – and hence reaching out to them again in future (called retargeting).

Going from Awareness to Acquisition is an important step that cuts out the vanity, letting you understand the traffic or reach or clicks or visits that can actually be considered “useful” and hence, “acquired” for future marketing and the next stages of the funnel.

Awareness vs Acquisition

So, with this simple definition, you can see the difference between users in the Awareness and the Acquisition stages is just this:

All people reached who view, visit, click or see anything about the startup will be considered in the Awareness stage, and of those people, all the ones that can be identified and remarketed to in future will be considered as Acquired or in the Acquisition stage of the funnel.

Metrics for Acquisition

Based on this definition, we can now list some of the metrics in the Acquisition stage, and also compare them for the Awareness stage that we learnt in the last chapter (for better understanding and reflection):

AWARENESS:

Clicks
Reach
Impressions
Visitors
Traffic

ACQUISITION:

Enquiries
Subscribers
Downloads using Lead Forms
Email Captures
Phone Number Captures
Incoming Calls
Chat Box Captures
Pixeled Traffic

You can see that “Traffic” falls into Awareness but “Pixeled Traffic” falls into Acquisition since it can be re-targeted through various marketing channels.

Growth Marketing Experiments for the Acquisition Phase

Just by looking at the metrics above, you’ll know the type of experiments that we can run for the Acquisition stage of the funnel. Here are some examples:

Setting up online chatbots on the website
Integrating Facebook Messenger on the website
Conducting live webinars
Providing lead magnet downloads
Promoting free courses for lead generation
Providing free case study downloads on your website resources
Giving free trials for your product
Letting users subscribe to your newsletter

All the above examples help drive the Acquisition Phase of the Growth Funnel. These are just for reference. You should design growth experiments based on the product or service you’re driving growth for.

That’s all for this chapter!

In the next chapter, we will deep dive into the Activation Stage of the AAARRR growth funnel.

UNIT 4: Growth Marketing FunnelMarch 25, 2021April 2, 2021

In Chapter 16, we discussed the growth funnel which we call the A3R3 funnel or the AAARRR funnel in detail.

We also saw a visual overview of the funnel with the growth marketing experiments you can run for each stage as well as some of the metrics you should measure at each stage of the funnel.

In this chapter, we will deep dive into the Awareness Stage of the growth funnel.

The Awareness Stage of the Growth Funnel

The Awareness Stage focus on growth activities and experiments that make the potential audience aware in the following situations:

that a solution exists for a need they have which they may or may not know about
that a solution is available with our startup
educating them as quickly as possible that they have this need and then informing them we can fulfill it

In case they know a specific need they have but they’re not “aware” if there’s a solution yet, then we must design growth hacking experiments to reach them fast.

Awareness: Scenario 1

Customer is or might be aware of their requirement.

Here’s a step-by-step example experiment in the Awareness Phase of the A3R3 funnel:

Step 1: Go through other close needs the customer may have
Step 2: Make a list of products or tools that solve the closest need
Step 3: Use the audience of these products or tools and market to their audience

Awareness: Scenario 2

Customer is not aware of their own need or requirement (sounds funny but this is often the case)

In this case, we can’t hack awareness of the product or solution directly, but we must first bring out the need and use Awareness hacks in parallel for maximum impact.)

Here’s a step-by-step example experiment in the Awareness Phase of the A3R3 funnel:

Step 1: Find a podcast or webinar or social media live chat or AMA platform which your target audience subscribes to
Step 2: Share general and specific tips during the event but also use it as a platform to ask questions and help people discover or understand or accept the need
Step 3: Capture their information and use content and retargeting via email or ads to reach them again with your solution for their requirement or need

What you can do – Awareness Hacks

Run validation ad campaigns to their target audience (read more about Validation Marketing, another term coined by Rishabh, which is closely related to the awareness stage of the A3R3 funnel)
Join their community and have conversations
Find a few of their users and then leverage word-of-mouth
Run retargeting campaigns
Run email marketing drips and newsletters
Create awareness landing pages with simple opt-ins

What you should measure – Awareness Metrics

Responses to your initiated conversations
Traffic to your awareness landing page through these experiments
Impressions on your content and messaging
Amount of time in terms of minutes of attention to your awareness stage content
Visits to your website from your Awareness Hacks
Podcast Impressions and Listen times
AMA views where you talk about the need or product

This should give you a good starting point to initiate your Awareness Experiments. What you can do from here is design multiple awareness experiments based on the above ideas and then plug them into the growth marketing experiments process to start executing and measuring results.

Remember:

AWARENESS MARKETING should not be confused with finding a Product-Market Fit. Having a product-market fit and the audience having awareness are two different things and should not be confused.

Here, we’re talking about startups who have a product-market fit based on their initial feedback or MVP iterations.

The problem we’re trying to solve here is for them to be able to make their own target audience aware of the product by either first making them aware of the need or by addressing their existing need.

On the other hand, startups or ideas without a product market-kit should go back to the drawing board and focus on finding the fit first and not think about growth hacking or growth marketing.

A product-market fit is the key pre-requisite for growth marketing – and should be worked on before diving into any of the core growth marketing funnel experiments.

That’s all for this chapter.

In the next chapter, we will deep dive into the ACQUISITION stage of the growth funnel.

UNIT 4: Growth Marketing FunnelMarch 20, 2021February 8, 2022

In Chapter 15, we went through the process of describing the customer’s journey through a growth funnel, which we called the A3R3 funnel or the AAARRR funnel.

The funnel describes the stages of an ideal customer’s journey – which are the stages of Awareness, Acquisition, Activation, Revenue, Retention, and Referral.

In this chapter, we will learn more about the growth funnel and in the chapters following this one, we will be dedication one chapter to each stage in the funnel.

We saw 2 examples of the user’s journey in Chapter 15 where we described how they go through each stage of the funnel.

Now, let’s look into the possible methods of driving the entire growth funnel as a growth marketer.

I want you to put your growth marketing hat on. Let’s get started.

Let’s say Startup A hired you as a growth marketer to define and drive their entire growth marketing funnel. Your first job will be to define the stages of the funnel well and the next step will be to design growth experiments for each stage of the funnel.

Let’s say the startup is an edutech company that creates online educational products for 5-15 year olds.

Here are some of the growth experiments we can plan for this startup:

Build influencer partnerships with mom bloggers who have parents of 5 to 10-year-olds as their target audience (since you will be mostly targeting parents of your audience) and create collaborative content with them.
Ask the influencers to offer a free trial class by your startup to their audience on an Instagram story.
Once parents and their children take the free trial class, offer them an easy onboarding user experiment, free training on the tool you use to teach online.
Provide the first 100 users who have taken a free trial class a 10% discount coupon for their first purchase of any online learning package for their children.
Review the data of how many children took all their paid classes in the package and provide the least likely to renew customers a 20% for their renewal.
Ask the most engaged customers to share your startup’s offering with their parents in their community or network.

These are only some of the experiments. I’m sure you can think of many more!

Good job. Now we have one growth experiment idea for each stage of the funnel for this startup.

Let’s do back to the examples and give the names of the stage to each experiment:

Influencer partnerships with mom bloggers – AWARENESS MARKETING
Influencers to offer a free trial class – ACQUISITION MARKETING
Easy onboarding user experiment and free training on the tool – ACTIVATION MARKETING
10% discount coupon for their first purchase of any online learning package – REVENUE MARKETING
20% for renewal of churn-risk customers – RETENTION MARKETING
Ask the most engaged customers to share your startup’s offering – REFERRAL MARKETING

This example should give you an idea of how you can design growth experiments for each stage of the funnel.

While a user could be in any stage of the funnel at any given time, it’s also important to understand that a new startup will have most users in the AAAR stages that are Awareness, Acquisition, Activation, and Referral. Throughout this phase of the startup, referral marketing campaigns will be highly ineffective since the referral-ready customer segment will be too small to make a huge difference in the marketing numbers.

This is important to know so you can design and plan your marketing experiments based on what phase your startup is in.

When a startup is very mature and has seen multiple cycles of the funnel, all stages of the funnel need to operate in parallel and growth experiments and marketing campaigns run based on segments across all stages at all times.

As an overview, here’s an infographic of all the stages we learnt in the A3R3 funnel along with some experiments for each – as well as the metrics you should measure at each stage.

That’s a lot of information but we will go into each through the next chapters:

UNIT 4: Growth Marketing FunnelMarch 15, 2021April 2, 2021

A funnel, just like the name suggests, represents the typical stages a user goes through in the customer journey.

It is a way of visualizing the process that turns leads into customers and beyond. Not every user has to go through each stage in a marketer’s funnel but it is a great reference for the marketer to understand the possibilities of their customer’s journey – in order to get the most value from the user as well as to add the most value to the users based on the stage they are in.

Let’s take a simple example where a customer goes through the following stages for startup A:

EXAMPLE 1:

Step 1: They come across a press release about Startup A
Step 2: They visit the website and sign up for the startup’s newsletter.
Step 3: They get a email and take a free demo by the startup.

These 3 steps would sound very familiar but the same can happen in multiple other ways.

EXAMPLE 2:

Step 1: The user finds a shared social media post mentioning Startup A.
Step 2: They visit the startup’s social media channel and subscribe to their updates.
Step 3: They find a post giving a free demo and they sign up for it.

Now, both these examples are different however the user is going through exactly the same stages of the customer’s journey.

So, what we can do is to name these stages so further instances of such user behavior can be referenced easily by the marketing team.

Let’s call the 3 steps above (in both examples) by easy to reference names:

Stage 1: Awareness
Stage 2: Acquisition
Stage 3: Activation

Now, go back to both the above examples again and see the further possibilities:

Back to Example 1:

Step 1: They come across a press release about Startup A
Step 2: They visit the website and sign up for the startup’s newsletter.
Step 3: They get an email and take a free demo by the startup.
Step 4: They like the free demo and pay for the product or service.
Step 5: They renew their service after one month.
Step 6: They ask one of their friends to sign up for the service too.

And In Example 2, let’s say the next steps are as follows:

Step 1: The user finds a shared social media post mentioning Startup A.
Step 2: They visit the startup’s social media channel and subscribe to their updates.
Step 3: They find a post giving a free demo and they sign up for it.
Step 4: They like the free demo and pay for the product or service.
Step 5: They extend their service contract for a year.
Step 6: They share the service or product on their social media where their friends can sign up for the service too.

See in both the above examples, the 3 new steps are actually the same stages of the funnel. This will help us extend our funnel to the following 6 stages:

Stage 1: Awareness
Stage 2: Acquisition
Stage 3: Activation
Stage 4: Revenue
Stage 5: Retention
Stage 6: Referral

This gives us our updated stages of the customer’s journey. We can create a simple acronym for the same to remember it:

Stage 1: Awareness (A)
Stage 2: Acquisition (A)
Stage 3: Activation (A)
Stage 4: Revenue (R)
Stage 5: Retention (R)
Stage 6: Referral (R)

That makes it the AAARRR funnel or we can shorter than to A3R3 funnel. This is a growth funnel any marketer can use.

Now, you should be thinking: what about users who churn? what about user’s who don’t refer their friends? what about user’s who, instead of renewal the product or service, go for another product or service by the same startup A?

Well, first of all, you are in the right mindset if you’re thinking about all these questions and this would mean you’re trying to get into the mind of your users.

The answer to all these questions can be different if we go into the specific scenario of the particular users. However, in general, the answer is that the growth funnel represents the “ideal customer’s journey”, not every customer’s journey.

The job of the growth funnel is to act as a tool for the marketer to design growth experiments in the potential and ideal stages of the customer’s journey.

As you run growth experiments on your customers, you will be able to start creating segments of users who are the best fit for each stage of the funnel. And then, you should focus those growth experiments only on those users.

For example, you’ll be able to know with the customer’s data the set of people who are “most likely to refer their friends” and design your initial referral marketing experiments to those set of users.

Also, remember that every user, at any given time, could be at any stage of the funnel. The key is to identify sets of users in each stage of the funnel and then design your growth experiments accordingly.

In the next chapter, we will deep dive into the A3R3 funnel or the AAARRR growth funnel that we just created together in this chapter!